Increase in Rent Expected for Shops in Surat’s Textile Markets Due to GST on Rent via Reverse Charge Mechanism

Surat : The recent introduction of Goods and Services Tax (GST) under the Reverse Charge Mechanism (RCM) on rented properties is likely to raise rental prices for shops in Surat's textile markets. As per the new GST provision, tenants of commercial properties will now be responsible for paying an 18% GST via RCM, which could lead to increased financial pressure on traders renting properties.

The GST Council recently discovered that many traders were not paying taxes on rent despite registering rental agreements to obtain GST numbers. A report was presented to the GST Council, which led to the decision to enforce an 18% GST under RCM on rental properties. This move will directly impact traders who were previously not paying tax on their rented premises.

Experts warn that with this new rule, a significant portion of traders' working capital may be tied up as GST credit on the portal, further increasing financial strain. Many traders already face challenges in utilizing their accumulated GST credits, and the new requirement to pay RCM on rent will likely exacerbate these issues.

Impact on Surat’s Textile Markets

In Surat’s textile markets, an estimated 30-35% of shops are rented. According to market leaders, Harbanslal Arora and Narendra Sabu, around 40-50% of shops in the Ring Road area are on rent, and with the new GST rule, rental prices may rise by up to 20%. Raghukul Textile Market leaders, Shravan Mengotia and Rajeev Omer, noted that about 30-40% of shops in their market are rented. They expect that this GST rule will increase the financial burden on these traders.

New GST Rules for Commercial Property Rent: CA Puneet Garg

Chartered Accountant Puneet Garg explained that the GST Council’s recent decision on September 9, 2024, mandates that commercial property rented to GST-registered entities will now attract GST under RCM. Previously, no GST was applicable in such cases unless the property owner was a registered entity. Under the new rule, the tenant will be responsible for paying 18% GST on rent. This is expected to increase the government’s GST collection but will also shift the tax burden to tenants.

Key Aspects of the GST RCM on Rental Properties:

1. No GST will apply if neither the tenant nor the property owner is GST-registered.
2. If both parties are GST-registered, the property owner will be responsible for paying the GST.
3. If the tenant is not registered but the owner is, the owner will be responsible for the GST payment.
4. If the tenant is registered but the owner is not, GST under RCM will apply, and the tenant must pay the 18% GST on rent.

This new rule is expected to be implemented soon, following the official notification from the government.